Tech earnings lookahead: Alphabet, Microsoft, Meta, Amazon, Apple
- Major tech names set to release results next week amid growing economic uncertainty
- Ad spend and consumer outlook ahead of Christmas are main topics in the spotlight
- The prevailing mood is one of cautious optimism
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown:
Alphabet – 24 October
“Advertising will remain the main driver of investor sentiment for Alphabet. As a market leader, Google’s advertising revenue tends to be more resilient than others in times of economic stress. I’m optimistic that momentum will have continued. YouTube in particular will be important to watch. It has a growing audience as Alphabet looks to harness the power of short-form content and streaming – YouTube now has a higher share of US screen time than Netflix.
The group’s cloud business stormed into profit-making territory last quarter and investors will be looking for that to have continued. Broader uncertainty may have taken some of the speed off the rate of growth, but there’s cautious optimism this area will have performed strongly.”
Microsoft – 24 October
“Microsoft expects revenue in its first quarter to be $53.8bn – $54.8bn, which was lower than analysts expected. The slower rate of growth reflects the part of the business that relies on Windows. Microsoft’s dealing with a marked slowdown in personal computing revenues, which reflects the incredibly challenging consumer environment. Buying a new laptop and the software that comes with it is simply not a priority for many people right now. A worse-than-expected slowdown here is likely to result in punishment from the market, as was the case following July’s quarterly earnings release.
This is where cloud business, Azure, comes in. This has been picking up the slack and I’ll be monitoring if corporations are trimming their spending on this technology, which I suspect they have been. The outlook on this side of things will be very important for gauging market sentiment. The bid to buy gaming giant and Call of Duty maker, Activision, has just been given the green light by UK regulators too, so a bit more colour in what this might mean for earnings projections would be welcome.”
Meta – 25 October
“Meta’s valuation has been on a largely unbroken upwards march over the last twelve months. A lot of the continued momentum stems from hopes that the US interest rate hiking cycle’s coming to an end, paving the way for growth stocks to enter into a more favourable arena. At the same time, Meta has surprised to the upside in recent results, which has helped the market breathe a sigh of relief after a challenging period.
The biggest catalyst for market moves will come from whether or not that will continue. The group expects third quarter revenue to be $32-34.5bn, with growth of 3% excluding exchange rates. The more focused business model should contribute to the group meeting this target, but there are some touch points that will need monitoring.
Full year expenses are predicted to come in higher than planned, including restructuring costs. Looking beyond 2023, Meta expects expenses to grow as it looks to invest in growth areas including AI and the metaverse. Reassurance is needed that budgets don’t appear too outlandish or lacking in direction – things that have badly spooked the market in the past.”
Amazon – 26 October
“Amazon’s retail division has been faring better than expected, and there’s hope this trend has continued in the upcoming results. Amazon has hired 250,000 seasonal workers for the upcoming Christmas rush – that’s 100,000 more than last year.
This suggests management is confident about the consumer outlook. Should [DN1] this bullish move ring true, it would mean good news for revenue and also dispel any lingering concerns about demand. Amazon has been caught out by overspending in the past though, and bulking out the workforce to this degree does increase risk should performance disappoint – a risk the market would punish the group for.
Of course, all eyes are on cloud business, AWS too. Growth has slowed here and the market will be hunting for clues that performance is going to reaccelerate. While AI remains a long-term growth driver, further steer about what the recent cloud controversy relating to anti-competitive practices in the UK could mean for Amazon would be welcome.”
Apple – 2 November
“Just like its namesake, the Apple needs to grow in order to prosper. Investors need to see a clearer growth pattern emerge before excitement can be unleashed where Apple’s concerned. Last quarter, Apple’s net sales were 1.4% lower than the previous year led by a drop in iPhone sales. Growth is likely to remain muted.
There’s a long-standing debate swirling around how resilient and loyal Apple’s customers are. As the cost of living globally remains elevated, there will be a limit to how many people are prepared to spend on big ticket items. Apple’s strong brand should limit any sharp falls in demand from cropping up, but that’s not the only part of the business case.
The Services division (think AppStore and Apple Music) is likely to have continued growing. This helps underpin profits because margins in software are more attractive than in manufacturing physical goods. The crucial part to all of this will be any hint on the outlook as we head into Christmas – it’s this trajectory that has the ability to move markets.”
What investors need to know
“The prevailing mood is one of cautious optimism and that increases expectations. The primary thing investors should keep an eye on is outlook statements. The festive quarter tells us the most about where a company lies and how the consumer landscape is faring, which has read across far beyond the festive season itself.”
